Christodoulos Damianou, together with colleagues Christos Theophilou and Demis Ioannou of Taxand Cyprus present a case study of how the Cypriot tax authorities use safe harbour rules in determining arm’s-length interest rates.
Transfer pricing has always been a challenging exercise, in particular in regard to intra-group financial transactions. It was not until February 2020 that the OECD eventually published specific guidance on financial transactions, namely the “Transfer Pricing Guidance on Financial Transactions: Inclusive Framework on BEPS Actions 4, 8-10”.
In the context of intra-group loans, to provide administrative simplicity for both the taxpayers and the tax authorities, safe harbour (or safe haven) rules are often used by tax authorities in determining arm’s-length interest rates. Such rules are usually optional (i.e. the taxpayer can elect to either apply the safe harbour rule or follow the country’s domestic transfer pricing guidelines).